According to a local news source published on Tuesday, China’s central bank has finished work on a blockchain-based system that digitizes checks issued by domestic businesses.
Di Gang, deputy head of the digital currency research lab at the People’s Bank of China, said the department has “completed the infrastructure of a system that issues digital checks based on a blockchain with smart contracts technology.”
According to Di, the work comes after a year-long R&D process that kicked off in 2016 when the lab first announced its plans to look to blockchain technology in order to solve the issue of check fraud in the Chinese market.
Di explained that physical business checks in China function like money orders, except that besides being used to claim a payment from a bank, recipients can also exchange them with other entities.
The existing system faces a significant problem whereby there is a large number of intermediaries that take on the role of traditional banks to issue checks, and that brings added risks of fraud, he said. As a result, fake checks can circulate among commercial banks and potentially undermine the country’s financial integrity.
He perceives that a main benefit of the system is to give regulators a transparent overview of the entire life cycle of a digital check, regardless of whether it is being redeemed for cash or being used as a security to back up other corporate assets.
Di explained: “Once the smart contract rules are set in the blockchain, any participant cannot alter the system easily. Even for code updates, regulators will have full access to the record, which increases regulatory efficiency and reduces the cost by removing a manual cross-checking process for transactions.”